CHENNAI, MAY 21, 2013: WHILE a 100% EOU can procure the raw materials and capital goods without payment of duty, there is no such facility as far as input services are concerned. But the EOUs are allowed to take credit of such service tax paid. This particular EOU had accumulated such CENVAT Credit of service tax and utilized it for payment of duty on finished goods exported. The EOU claimed rebate of such duty paid under Rule 18 of the Central Excise Rules, 2002. The rebate claim was rejected by the department on various grounds like, the goods manufactured by EOU are exempted under Notification No 24/2003 CE dated 31.03.2003, and as per Section 5A (1A) of the Central Excise Act, 1944, the EOU should avail exemption and cannot opt to pay duty.

The EOU is before the High Court against the rejection of rebate.

The Petitioner contended that:

The petitioner is a manufacturer of excisable goods and it avails CENVAT credit on the Service Tax paid on the input services. No CENVAT credit is available if the finished goods are exempted from duty. For the purpose of allowing credit the revenue is treating the goods manufactured by the petitioner as not being exempt from duty. It cannot be the case of the revenue that while credit can be allowed as if the finished goods are not exempt from duty the petitioner cannot export the goods on payment of duty and claim rebate, under Rule 18 of the Central Excise Rules, 2002. Hence, the department not questioning the credit taken, cannot question its utilization to the detriment of the assessee-exporter. When the goods are not exempt absolutely and unconditionally, the payment of duty on the finished goods using the credit permitted and claim of the rebate on their exports is justified and correct.

It was further contended that it would not be of any use to the petitioner if the respondents are keeping the rebate amount in credit, as the petitioner does not make any local sales and therefore, no excise duty would be payable by the petitioner. Therefore, the second respondent is bound to pay the rebate amount to the petitioner, in cash, if necessary, subject to certain safe guards and conditions, as may be specified by the Central Government, by notification.

After hearing both sides, the High Court held:

In view of the averments made on behalf of the petitioner, as well as the respondents, and on a perusal of the records available and in view of the decisions cited supra, this Court finds it appropriate to conclude, without going into the other issues relating to the matter, that the second respondent is bound to refund the rebate payable to the petitioner, in cash, subject to certain conditions to safeguard the interests of the respondent department. In view of the fact that the petitioner had paid the excise duty on the goods exported by it, and as it may not be of use to the petitioner if the respondent department keeps the amount of rebate claim in credit, as the petitioner does not have local sales, the respondent department is directed to refund the duty paid by the petitioner, on the goods exported by it, as expeditiously as possible, subject to certain conditions, which may be necessary to safeguard the interests of the respondent Department.

(See 2013-TIOL-416-HC-MAD-CX)